NEW YORK – U.S. stocks fell yesterday, with the Nasdaq composite index posting its sharpest drop in seven weeks, as investors dumped shares of riskier sectors such as technology and home builders on signs that wage inflation may force the Fed to again lift interest rates.
A third straight session of declines in crude oil futures also hurt heavily weighted energy shares on both the S&P 500 and Dow Jones stock indexes.
A Labor Department report that wages rose at an annual rate of 4.9 percent in the second quarter, above the 4.2 percent the agency estimated, was an unpleasant surprise for a market that had reached three-month highs on hopes of stable rates.
For the first quarter, the department said, labor costs jumped 9 percent – the largest quarterly rise in almost six years.
One of the market's greatest fears is that although the economy might continue to slow, the Fed will resume its course of rate hikes as it seeks above all to forestall inflation. Both pose a threat to corporate profits.
The Dow Jones industrial average fell 63.08, or 0.55 percent, to 11,406.20.
The tech-heavy Nasdaq composite index and the Standard & Poor's 500 index showed steeper declines. The Nasdaq dropped 37.86, or 1.72 percent, to 2,167.84, in part as Intel Corp. declined following a widely expected announcement of job cuts. Intel fell 68 cents, or 3.40 percent, to $19.31, after saying it would eliminate 10,500 jobs. Some on Wall Street had hoped the cuts would be deeper.
The S&P 500 was down 12.99, or 0.99 percent, at 1,300.26, while the Russell 2000 index of smaller companies fell 15.46, or 2.13 percent, to 712.04.
Declining issues outnumbered advancers by about 4-to-1 on the New York Stock Exchange.
“I think people are still looking over their shoulders in terms of labor costs,” said Jon Brorson, head of growth equities at Neuberger Berman in Chicago.
The declines in stocks under the weight of economic news came despite recent lows in the price of oil.
Crude prices, which have recently been above $70 a barrel, fell amid a perhaps temporary easing of tensions with Iran over its nuclear ambitions, an end to the summer driving season and news that one Gulf of Mexico platform is now producing 20 percent more than before it was struck by Hurricane Katrina.
Crude prices were down $1.10 at $67.50 a barrel on the New York Mercantile Exchange. The decline hurt oil stocks yesterday.
Oil field services company Schlumberger Ltd. dropped 5.4 percent to $58.91, while oil producer Occidental Petroleum Corp. shed 6 percent to $47.78.
Exxon Mobil Corp. shares were the top drag on the Dow and S&P 500, declining 1.9 percent to $67.18.
Bonds fell on investor disappointment with yesterday's economic data. The yield on the benchmark 10-year Treasury note climbed to 4.80 percent from 4.78 percent Tuesday. The yield had hit a five-month low of 4.73 percent Friday.
The dollar was mixed compared with most major currencies, while gold fell.
